Yangtze Optical Fibre And Cable Joint Stock Limited Company (HKG:6869) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 94% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Yangtze Optical Fibre And Cable Limited's price-to-earnings (or "P/E") ratio of 11.9x is worth a mention when the median P/E in Hong Kong is similar at about 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

While the market has experienced earnings growth lately, Yangtze Optical Fibre And Cable Limited's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Yangtze Optical Fibre And Cable Limited

Want the full picture on analyst estimates for the company? Then our free report on Yangtze Optical Fibre And Cable Limited will help you uncover what's on the horizon.

How Is Yangtze Optical Fibre And Cable Limited's Growth Trending?

The only time you'd be comfortable seeing a P/E like Yangtze Optical Fibre And Cable Limited's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. Even so, admirably EPS has lifted 41% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to slump, contracting by 15% during the coming year according to the five analysts following the company. Meanwhile, the broader market is forecast to expand by 19%, which paints a poor picture.

With this information, we find it concerning that Yangtze Optical Fibre And Cable Limited is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Yangtze Optical Fibre And Cable Limited's P/E?

With its share price falling into a hole, the P/E for Yangtze Optical Fibre And Cable Limited looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Yangtze Optical Fibre And Cable Limited's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with Yangtze Optical Fibre And Cable Limited (including 1 which is a bit unpleasant).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.